Tesla Quietly Just DOUBLED Its Energy Storage Business

Tesla introduced the new mega pack this year in 2022 it's the next version of their large-scale commercial energy storage product which they originally released in 2019 the previous mega pack has been said to store up to 2.6 megawatt hours of energy but with the 2022 update the stationary storage system now holds 3.9 megawatt hours worth of rechargeable Lithium-ion batteries the mega pack is intended for use by utility companies as it can be charged off of renewable energy sources such as wind and solar which are intermittent in nature mega pack can then smooth out this energy to be used by the grid when needed and it's also robust enough to deliver high power during Peak energy usage times Tesla CEO Elon Musk has stated on multiple occasions that Tesla energy which today is just a fraction the size of the automotive division will end up being just as low large however this hasn't been apparent over the last few years with the stationary battery division still remaining small showing little growth negative to low profitability and starvation due to redirecting batteries to the more important vehicle business however things have begun to shift Tesla's VP of investor relations has recently stated for the first time I can remember we can access all the supply we need for both businesses referring to both the energy and Automotive businesses and then just in the most recent quarter reported this past week Tesla's stationary battery deployments started to break out growing an astounding 85 percent over the previous quarter and it doesn't seem like it's stopping there and before I continue stop using Yahoo finance stop using Google Finance and have a look at our website the market isopen.com where we have instant stock quotes and financial data going back 10 years and it's all freely available Tesla reported over two gigawatt hours of stationary battery deployments in the September quarter of 2022 an all-time record for the company this is a meaningful increase as it represents almost a gigawatt hour above just the previous quarter Tesla derives the majority of its energy revenue from the commercial mega pack and the residential powerwall both of which hit records in the quarter Tesla's power pack device essentially a smaller version of the mega pack for commercial use seems to continue to be available from Tesla but more as an off menu item they still seem to sell it but it doesn't appear to be on the company website anymore nonetheless the mega pack is where the real scale is at and it's set to lead the charge going forward in expanding the energy division the new mega pack released in the middle of the year is said to be 60 percent more energy dense than Tesla's previous generation power pack device it's also about 50 percent larger in kilowatt hours than the previous version of the mega pack weighing 60 percent more coming in at 83 000 pounds this new mega pack comes in two configurations a two hour and a four hour duration the two hour version has just a hair less energy storage capacity but it can supply twice as much power and costs about a hundred thousand dollars more than the four hour version this likely has to do with more expensive Electronics in order to sustain such a power increase the price of the mega pack could fluctuate depending on which U.S state it's set to be delivered in and there's also a discount for ordering them in bulk there's an eight thousand dollar maintenance fee on a per pack basis and a 700 thousand dollar optional installation fee for the two hour pack and this installation fee Rises just marginally for each mega pack added to the order but it appears to be a lot cheaper only three hundred thousand dollars for the installation of the four hour version the earliest delivery date according to Tesla's order page is for Q3 2024 which is two years from now so they seem to be highly backlogged on this product Elon Musk has even stated multiple times before and even most recently on the Q3 2022 conference call that there are no demand issues the real challenge is Supply up until now Tesla has been assembling Mega packs at its Giga Nevada Factory they come pre-assembled to the buyer when ordered and they're built to be about the size of a shipping container so that they can more easily be transported although the new Mega packs are approximately six feet longer than their predecessors however Tesla has been hard at work at bringing up its new mega pack Factory in Lathrop California which aims to produce 40 gigawatt hours worth of megapacks per year this seems to have started contributing to Tesla's sales which is why stationary storage has started to break out to new highs while the mega pack Factory assembles the packs the battery cells themselves can come from Tesla's own Giga Nevada Factory or even third-party suppliers the mega pack isn't too picky on which types of batteries are used as compared to Vehicles which are more stringent now it was exciting to see on the most recent conference call that Elon Musk said 4680 battery cell production was gaining rapid traction having grown three times over just the previous quarter it's not clear where Tesla is deploying their new 4680 cells yet the majority seem to be going towards the Tesla Model y but as long as Tesla's vehicle division is satisfied with battery supply then stationary storage can Ram freely only limited by the number of excess battery cells they have and the rate at which Tesla can produce the rest of the battery pack assemblies batteries have been the core limiting factor but now Elon Musk has publicly stated a new interim Target of one terawatt hour of vertically integrated capacity meaning 4680 cells made by Tesla not including suppliers and he's directing the company to get there as fast as possible he wants the team to go pedal to the metal and that's supposed to be all U.S production according to Elon Musk keep in mind that 4680 cells are also going to be produced a giga Berlin which doesn't seem to be part of this aspirational number originally the target was set for a hundred gigawatt hours by 2022 and three terawatt hours by 2030 though with an exponential growth rate one terawatt hour shouldn't be achievable until at least the second half of the decade assuming the three terawatt hour Target by 2030 but but if Tesla can achieve this perhaps by mid-decade they may be ahead of schedule on the conference call 300 to 400 terawatt hours were mentioned alluding to the amount of energy needed to transition the world to sustainable energy it seems that Tesla isn't happy with just hitting three terawatt hours by 2030 as there would still need to be a hundred-fold increase by the industry to make up the difference to transition the world Tesla's senior VP of Powertrain and Energy Engineering Drew baglino also echoed that one terawatt hour seems like a lot but it really isn't that much in the grand scheme of things so Elon musk's vision and sense of urgency appears to have escalated as he says Tesla is headed towards an unprecedented future this is excellent news for Tesla as the market is so large that they can produce as many battery packs as they want and they likely won't hit any sort of demand issues for the foreseeable future furthermore the stationary storage division according to Elon Musk will now considerably outpace the growth rate of Automotive at an estimated 150 to 200 percent per year and so it will begin to catch up to the vehicle businesses Revenue although it makes up about five percent of Revenue today so it will still remain smaller than cars for many years to come but the Gap will begin to narrow however although Tesla had record gigawatt hours produced in energy storage this quarter the financials didn't seem all that great Tesla sold over a billion dollars worth of product in a single quarter which has never been done by the company before in terms of energy but expenses ate up most of that gain coming in just 100 million dollars less than Revenue which shows about a 10 percent gross profit margin this was slightly better than the previous quarter in terms of gross profit dollars but given that far less product was sold in Q2 margins this quarter were actually a bit lower to be fair the energy division wasn't at all profitable in q1 of this year and in Q4 of last year and was just breaking even a year ago so if Tesla is focusing on doubling down on stationary storage such that it makes up a much larger part of the business investors are very worried that not only will this division not be very profitable but it could also lower Tesla's overall industry-leading margins something that doesn't bode well for the stock price since analysts tend to focus heavily on margins this is leading to some disappointment but I think it's the wrong way to look at Tesla energy first off the stationary battery storage division is dragged down slightly by the solar part of the business which is grouped in here this is still in its infancy and Tesla is experimenting with ways to improve solar installations and so solar may be contributing to some losses energy without solar has likely been profitable this entire time in the last couple years even though Tesla doesn't break apart the revenue and expenses for for each unit but Tesla energy really only started taking losses when Tesla increased their solar deployments including hiring installation teams nevertheless we can assume that solar makes up a small percentage of the total energy Division and so it looks like stationary storage alone still appears to have very low margins although that may not actually be the case a single mega pack is made up of battery modules bi-directional inverters a thermal management system controls and an AC main breaker while inverters are expensive and could cost tens of thousands of dollars for commercial grade Electronics of this magnitude it's highly likely that the battery pack itself is the most expensive part of the mega pack on the most recent conference call Elon Musk said that Tesla expects to reach 70 dollars per kilowatt hour at the cell level for its batteries and this doesn't include incentives Tesla may be able to get an insane 30 or 40 dollars per kilowatt hour making up about about half of their costs in 2023 and Elon Musk was adamant that the company would get the full amount but let's ignore these very lucrative incentives for now these batteries need to be integrated into the mega pack and so let's assume a price of one hundred dollars per kilowatt hour which is fairly reasonable akin to vehicle battery packs and given that stationary storage can use the cheapest lithium-ion phosphate type batteries available since there's no real Mass constraint on a stationary piece of equipment the new Mega packs are 3.9 megawatt hours in size translating to about four hundred thousand dollars worth of battery cells again before incentives even if the rest of the pack assembly was another four hundred thousand dollars to be highly conservative for a total of eight hundred thousand dollars Tesla is still selling one of these Mega packs for 1.6 million dollars without including installation or maintenance and so that calls for 50 margins so why is it that gross margins are only at about 10 percent in Tesla's Financial results well I expect to see stationary battery margins begin to expand rapidly over time here's why the issue is that the energy division is temporarily suffering the same way that Giga Texas and Giga Berlin are but with how the mega Factory contributes to earnings when a brand new Factory opens up for production the expenses related to constructing that factory for instance start to make their way into the financial statements the cost of the factory itself Works its way into the expenses of the products through depreciation there's also other expenses such as labor or the energy used to turn on the lights that the factory per se not to mention all the Machinery that's running and in the end only a relatively small number of Mega packs have been produced without the mega pack Factory Tesla has been selling about one gigawatt hour per quarter we can therefore estimate that the mega pack Factory contributed another one gigawatt hour this quarter so Tesla built a factory that should be capable of doing 40 gigawatt hours per year or 10 gigawatt hours per quarter and it only outputted one gigawatt hour worth of megapacks or just 10 percent of its capacity therefore these limited numbers of Mega packs were very expensive for Tesla to produce they gained huge economies of scale as the factory ramps up if they had instead delivered say two gigawatt hours of megapax using a similar amount of resources then that second gigawatt hour already had its fixed expenses paid for so the profit from those new Mega packs goes straight to the bottom line this would increase Tesla's average margins and so as Tesla Works their way up to 40 gigawatt hours per year what the megapak factory was built for the margins of that business should approach the margins on the mega pack product itself as the cost of the factory becomes less relevant with much higher production volume the mega pack Factory is in its earliest Innings and so it shouldn't be discounted it's actually quite impressive that Tesla energy is currently profitable on its own from a gross profit perspective despite just starting up a brand new Factory it could end up being immensely profitable bringing billions more dollars into Tesla's Revenue stream in the same way that once Giga Texas ramps up its Vehicles their new Factory goes from taking losses to being very lucrative as we estimated Mega packs are inherently quite profitable they should be bringing in a lot of net income for Tesla but only once they ramp up to fill a higher capacity percentage at their new Mega Factory it will take some time to ramp up but the patient investor could see some explosive returns as Tesla boosts their output so how long do you think it will take before test Restless sees a meaningful increase in its energy margins and how do you think the 2023 tax incentives from the inflation reduction act will affect Tesla's income please hit the like button and subscribe we would really appreciate that and a huge shout out to all of our patrons that help to support our Channel your support helps us to continue to make great content thank you guys so much for watching

Channel: TMIO Tesla

Views: 44,273

Keywords: tesla, elon musk, Why Tesla Has Struggled With Energy And How It’s About to Change, Why Tesla Energy is About to Work Out the Way Elon Musk Predicted, How Tesla Is Quietly Expanding Its Battery Storage Business, Why Tesla’s Battery Storage Business is Breaking Out Just as Elon Musk Predicted, The NEW Megapack 2022 Update, Tesla's NEW Megapack is BREAKING OUT

Id: KasH5H1QVrw

Length: 15min 1sec (901 seconds)

Published: Sun Oct 23 2022